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Minority government ‘threatens capital projects’

A construction economics expert has warned that capital projects will come under pressure whichever government is formed from the current uncertainty.

Allan Wilen, construction director at business intelligence unit Glenigan, said government spending would be under intense scrutiny from newly-powerful MPs.

The hung Parliament produced by yesterday’s general election will also mean a period of damaging uncertainty, and risk to the economic recovery, he said.

“Given that no party has an overall majority, the construction industry, along with the rest of the country, faces a period of continued uncertainty as the politicians decide who should form the next government.

“While a minority Conservative government appears the most likely outcome, the delivery of its policies will be subject to negotiation through Parliament. Against this political background, public sector capital expenditure programmes are likely to be regarded as a relatively easy target. 

“Construction-related areas, from the schools building programme to Crossrail, will be vulnerable to both explicit spending cuts and to cuts by stealth as protracted policy reviews push back planned spending.”

Mr Wilen added: “The Conservative party has argued for effective action to cut public spending and tackle the budget deficit in order to reassure financial markets and nurture a private sector-led recovery.

“A minority government will have to demonstrate to financial markets that it is able to deliver the promised overall reduction in the budget deficit. Furthermore there is a risk that continued political uncertainty could undermine consumer and business confidence and hamper the pace of economic recovery.

“In particular there have already been tentative signs that the upturn in the housing market faltered ahead of the general election. There is a risk that political indecision will be replicated in the housing market, dampening the anticipated recovery in new housing activity over the next 12 months.”